Getco Evaluating its Investment in Knight
November 16, 2012
More Control
The change in Getco’s filing “would suggest to me that they might now be thinking that they want to expand their holding and go for more control,” Elizabeth Nowicki, a mergers and acquisitions professor at Tulane University Law School, said in a phone interview.
In an Aug. 6 interview, Daniel Coleman, chief executive officer of Getco, said Knight’s disappearance wouldn’t have yielded a “better world” for Getco. Without Knight’s ability to provide liquidity, “it would be more expensive for everyone to trade,” he said in a phone interview.
“In some ways Knight’s a competitor, in some ways they’re a client, in some ways we’re their client,” Coleman said. “But at the end of the day the liquidity they provide and I think the liquidity we provide probably makes both of us better. This is in our strategic interest to make sure Knight stays viable.”
SEC Investigation
The SEC began a formal investigation into Knight’s compliance with a rule governing risk-control procedures in its trading operation and other regulations, the company said in a filing with the commission on Nov. 8.
Knight’s stock plunged after the computer malfunction, which accelerated an industrywide assessment of how to improve controls in electronic trading. From a price of $10.33 on July 31 the shares fell 75 percent over the next two days and haven’t traded above $3 since Aug. 10. Its market capitalization bottomed at $253 million in August and has climbed back above $420 million as stock has been converted by its rescuers.
Joyce said on a conference call accompanying the firm’s earnings release on Oct. 17 that he had no plans to split apart the electronic business, the market-making unit and the institutional sales and trading segment, or reallocate resources between them.
“We are better off having them all than becoming a siloed kind of one-product firm,” Joyce said. “We came back as well as we came back because of the broadness of our organization.”
Richard Repetto, a New York-based analyst at Sandler O’Neill & Partners LP, said Knight is stronger now than it was in early August when retail brokers reduced the number of orders they sent the firm.
“Knight’s business is more stable now,” Repetto said in a phone interview. “I don’t think Knight needs to do an acquisition but it may help speed a recovery after the technology mishap that occurred.” He said he considers Getco a “possible partner, especially once they participated in Knight’s recapitalization.”
